Penalty Clause Enforceable?

[mactcatfootball]

Hi,

I currently work for a company, but am looking to relocate in the UK which will mean a change of employer. I have been with my current employer since November 2013 and achieved the required professional qualification in May 2014.

My contract includes what I consider to be a penalty clause stating that if I leave the company prior to May 2017 I will be subject to a charge of £10,000 as compensation for training received.

All my training was received in the period of employment prior to achieving the professional qualification and since May 2014 I have been earning substantial fees for the company.

My question is whether the £10,000 penalty is enforceable if I were to leave the company approximately 6 months prior to May 2017?

Any advice will be appreciated.

Thanks

[Amethyst]

Re: Penalty Clause Enforceable?

When you you start the qualification that you achieved in May 2014, and how was the training paid for/arranged etc ?

Does your contract specifically state May 2017 or is it a certain period after completing the training?

It may assist if you can type out the clause from your contract.

[mactcatfootball]

Re: Penalty Clause Enforceable?

Morning and thanks for coming back to me.

All the training was provided in house by the company. There were no external trainers contracted to deliver any element of the training. Training was delivered to a cohort of around 40 trainees, not on an individual basis.

The training commenced on employment in November 2013 and ran until completion of the qualification in May 2014.

The clause contained within my contract is as follows;

Refund of Fees:

The employee authorises the employer to make deductions from salary, bonus, commission or any other payment due to the employee and/or the employee shall reimburse to the employer the fees for the provision of the graduate training should the employment cease for any reason and reimbursement will be in accordance to the following:

Post Qualification:

within 3 years of becoming qualified: £10,000

The employee shall not be liable to make any reimbursement to the employer under this agreement if the termination is as a result of;

redundancy;

resignation due to a fundamental breach of contract by the employer and a tribunal makes this finding of fact;

or unfair dismissal by the employer and a tribunal makes this finding of fact...


I don't know if this will make any difference, but I did not join the company as a 'graduate'. Instead I was accepted to the position due to an accumulation of relevant work experience.

I look forward to hearing your thoughts re the above.

Thanks

[R0b]

Re: Penalty Clause Enforceable?

Aside from the training, did the company pay for any fees for you to obtain the qualification and if so, how much was it?

The first issue I would see is that if the training was provided to you by your employer inhouse with no external trainers, I can't see how any loss of fees has been made. Other than the loss of time from the people giving it, and how do you quantify that time? There's nothing in the wording you have supplied of how this amount of time has been calculated i.e. there is no specified sum of what fees your employer is paying for.

Repayment of training fees have to be pretty robust in order to be effective. Where it says that you will pay a flat fee of £10,000 if you leave within 3 years in my opinion is unenforceable. this is because your employer would have had the benefits from you between May 2014 and 2017, so the loss to them cannot be the initial fees paid (assuming it cost them £10,000 to give the training from employees of the business). To get around this, employers would set out repayment fees on a sliding scale for example:

Leave within year 1PQE = 75%
between years 1-2 = 50%
between years 2-3 = 25%

The other point is that most of the time, the repayment of training fees will last up to 2 years post qualified, but could be as long as 3 or more depending on the type of work you are doing. Usually 2 years is most appropriate and anything more would need to be justified. Even if there was a sliding scale in there, if you've made alot of money for the business within those 2 years it might be argued that it is unreasonable to have such a clause (think of investment bankers if they've made upwards of £100,000 in their first year which means it could be disproportionate since they have already reaped the benefits of spending £10,000 on the employee).

So to summarise, I would say its unenforceable on the basis (unless it says elsewhere in the contract) that there's no specified sum of training fees they have spent on this 'graduate training' and there is no sliding scale so within the first 3 years, the employer has derived some benefit as a result of you qualifying.

As for the question about you joining as a graduate, does your job title say graduate or something else? The second question is whether or not 'graduate training' is defined in your contract. A technical argument is that if your job title is not 'Graduate' and it is something else but you have been given the training anyway, then you could argue that the fees only applied to those who are graduates only those who are not titled as such, are not required to repay despite being given the qualification. The argument could be further strengthened if there is no definition of graduate training, then how do you define what that training actually is - does it mean any training including compliance training such as money laundering regulations or does it specifically relate to the training for the qualification? No definition = too wide in scope and ambiguous = unreasonable.

[mactcatfootball]

Re: Penalty Clause Enforceable?

Hi Rob,

Thanks for the in depth response, I'm very grateful. I'll attempt to answer your questions as best I can below;

1. Aside from the training, did the company pay for any fees for you to obtain the qualification and if so, how much was it?

a) I remember the company paid a submission fee to the awarding body, as our qualification was based on a written submission and case study. We were never told the exact cost of the submission, but I would imagine no more than £300-£500.

2. To get around this, employers would set out repayment fees on a sliding scale

a) There is no further mention of the penalty clause within my contract other than what I included in my last message, certainly no mention of a sliding scale

3. As for the question about you joining as a graduate, does your job title say graduate or something else?

a) My job title has never included the term 'graduate' and other than the penalty clause no other paperwork refers to the term 'graduate'. Prior to achieving the qualification I was referred to as a 'trainee'. I do not hold a degree and therefore cannot be classed as a graduate to my mind.

There is no other mention of training, sliding scale, penalty clauses, etc...anywhere else within my contract of employment.

Hope this helps to build a more detailed picture and thanks again